Stochastic interest rates, transaction costs, and immunizing foreign currency risk

Article Abstract:

The creation of a synthetic put to formulate a new approach for immunizing foreign currency risk where options traded on the exchanges are held unavailable makes transactions cost an important concern. The approach employs a synthetic put to replicate the payoffs of an actual put. It is self-financing and assumes stochastic interest rates with the use of Leland's approach. The proposed approach can also be applied to the problem of immunizing a foreign equity portfolio.

Asset & Risk Management, Evaluation, Stochastic processes, Foreign exchange futures

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An empirical evaluation of the extended mean-Gini coefficient for futures hedging

Article Abstract:

Risk-minimization strategies on futures hedging generally utilize mean-variance (M-V) ratios. These measurements of risk-minimization commonly include the normal distribution of earnings and quadratic utility processes. Some researchers have suggested that mean-Gini hedge ratios are an improvement over M-V ratios because mean-Gini coefficients are second-order stochastic dominant. A model of the mean-Gini coefficient is presented.

Gini coefficient

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The systematic risk of futures contracts

Article Abstract:

Analysis of the Capital Asset Pricing Model was conducted to determine whether the returns on futures contracts are equal to zero and to identify the relationship between realized returns and systematic risk. Results showed that returns on futures is equal to zero only with regard to physical commodities. In addition, it was revealed that an inverse relationship exists between realized returns and systematic risk.

Securities and Commodity Exchanges, Security and commodity exchanges, Commodity Exchanges, Risk (Economics), Capital assets pricing model, Capital asset pricing model

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